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Federal Education Tax Credits Can Totally or Partially
Offset Higher Education Tuition Expenses at Leeward Community
College The Hope Credit and the Lifetime
Learning Credits are education credits you can subtract in full from your
federal income tax, not just deduct from your taxable income.
Therefore, they can be as much as three times more valuable than the
same amount of tax deductions. $1,500 HOPE
Scholarship to make the first two years of college universally
available. For students in the first
two years of college (or other eligible post-secondary training), taxpayers will
be eligible for a tax credit equal to 100% of the first $1,000 of tuition and
fees and 50% of the second $1,000 (the amounts are indexed for inflation after
2001). The credit will be available on a per-student basis for net tuition and
fees (less grant aid) paid for college enrollment after December 31, 1997. The
credit is phased out for joint filers between $83,000 and $103,000 of income,
and for single filers between $41,000 and $51,000 (indexed after
2001). The credit can be claimed in two taxable years (but not beyond
the year when the student completes the first two years of college) with respect
to any individual enrolled on at least a half-time basis for any portion of the
year. Interesting note re
year of study requirement (from IRS Federal Register definition):
“ Whether a student has completed the first two years
of postsecondary education at an eligible educational institution as of the
beginning of a taxable year is determined based on whether the institution in
which the student is enrolled in a degree program awards the student two years
of academic credit at that institution for postsecondary course work completed
by the student prior to the beginning of the taxable year.”
Strategy: Always try for the HOPE Scholarship Credit first
even if you may have attended more than two years of post-secondary schools; you
may still be classified as a freshman or sophomore by your current institution.
Lifetime
Learning Credit for College Juniors, Seniors, Graduate Students and working
Americans pursuing lifelong learning to upgrade their skills. For those beyond the first two years of college, or
taking classes part-time to improve or upgrade their job skills, the family will
receive a 20% tax credit for first $5,000 of tuition and fees through 2002, and
for the first $10,000 thereafter. The credit is available for net tuition and
fees (less grant aid) paid for post-secondary enrollment after June 30, 1998.
The credit is available on a per-taxpayer (family) basis, and is phased out at
the same income levels as the HOPE Scholarship. Interesting note re Lifetime Learning
Credit (from IRS
Federal Register definition): Both degree and nondegree courses
are eligible for the credit – “In general, for purposes of the Lifetime
Learning Credit, amounts
paid for a course at an eligible educational institution are qualified tuition
and related expenses if the course is either part of a postsecondary degree
program or is not part of a postsecondary degree program but is taken by the
student to acquire or improve job skills.” Strategy: As long as the
course(s) is taken at an eligible institution, such as Leeward Community
College, you can qualify for the credit by taking credit courses or
non-credit courses as long as the non- credit courses are to
“acquire or improve job skills”. Important Consideration:
If you or your parents were eligible but failed to claim any credits in the
past, you may retroactively claim these credits up to three years after the tax
year the credits should have been claimed by filing an Amended Tax Return, Form
1040X and receive a tax refund plus interest. What if your income it too high to qualify
for the credits? There is an attractive alternative – the qualified education
expenses deduction. The tuition and fees deduction can reduce the amount of your
income subject to tax by up to $3,000. Maximum deduction increases to
$4,000. Beginning in 2004, the amount of qualified education expenses
you may take into account in figuring your tuition and fees deduction increases
from $3,000 to $4,000 if your modified adjusted gross income (MAGI) is not more
than $65,000 ($130,000 if you are married filing jointly). If your MAGI is
larger than $65,000 ($130,000), but is not more than $80,000 ($160,000 if you
are married filing jointly), your maximum tuition and fees deduction will be
$2,000. No tuition and fees deduction will be allowed if your MAGI is larger
than $80,000 ($160,000). What is the tax benefit of the tuition and
fees deduction? This
deduction is taken as an adjustment to income. This means you can claim this
deduction even if you do not itemize deductions on Schedule A (Form 1040). This
deduction may be beneficial to you if you cannot take either the Hope or
Lifetime Learning Credit because your income is too high.
Warren
Imada, Prof., Leeward Community College, Business Technology Division,
2/28/2004 References:
IRS Publication 970 Tax
Credits for Higher Education
IRS Tax Topic 605, Education
Credits
Frequently Asked Tax Questions
And Answers, Education Tax Credits
Federal
Register, DEPARTMENT OF THE TREASURY, Internal Revenue Service,
26
Code of Federal Regulations Part 1,
[REG–106388–98]
RIN 1545–AW65 Education
Tax Credits
Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits)
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